SRCE
1st Source Corporation
$83.35
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Moderate
·
Conviction
Undervalued
Trading 38.1% below fair value
You pay
$83.35
Bear
$86.51
Fair
$134.67
Bull
$163.57
Bear
$86.51
+3.8%
ROTCE 10.0% → 1.75x TBV
Fair
$134.67
+61.6%
ROTCE 13.3% → 2.72x TBV
Bull
$163.57
+96.2%
ROTCE 15.3% → 3.31x TBV
Key Value Driver
ROTCE (13.3%) vs. cost of equity (7.4%)
Implied Market Multiple
1.68x
Summary
With ROTCE of 13.3% vs. 7.4% cost of equity, fair P/TBV is 2.72x on $49.49 tangible book, implying $134.67 per share. DDM cross-check: $82.68.
Warnings
Traditional cash flow models don't work well for banks — lending activity distorts how much cash the business actually generates.
Common valuation shortcuts don't apply here — for banks, interest payments are a core business cost, not overhead.
Dividend-based valuation: $82.68 (39% below our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Key Risks
- Book value quality matters as much as level — check loan loss reserves
- Interest rate sensitivity creates non-linear earnings surprises
- Insurance reserving is actuarial, not financial — errors emerge slowly